Global markets face selling pressure

Global markets had a difficult week in the midst of uncertainty regarding the next move by the US Fed. In its meeting the US Fed decided to keep interest rates unchanged and gave no indication about when a possible hike can be expected. The US markets were marginally down for the week at the time of writing.

European markets faced selling pressure amid fears that Greece will exit the Eurozone. The British FTSE, French CAC and the German Dax were down by 1.7%, 3.1% and 3.2% respectively.

The Chinese markets continued to run up due to the easy money policy adopted by the Chinese central bank. Back home in India, the markets were under pressure due disappointing earnings as well as uncertainty relating to taxation of FII investments.

Key world markets during the week
Source: Yahoo Finance

The week gone by witnessed sharp selling activity across many indices. Stocks from FMCG and metal sectors lead losers while banking stocks were the top gainers.

BSE indices during the week
Source: BSE

Now let us discuss some of the key economic and industry developments in the week gone by.

The Union Cabinet has given a green signal for urban renewal. The clearance has been given to develop 100 smart cities and rejuvenate 500 cities and towns with a population of one lakh and above. Out of the total of Rs 1 trillion allocated for a period of five years, Rs 480 bn are for the 100 smart cities also known as Smart Cities Mission whereas Rs 500 bn have been sanctioned for Atal Mission for Rejuvenation and Urban Transformation (Amrut) for 500 cities. As per the rejuvenation plan, each city would get Rs 1 bn from the Centre for five years while the balance will be funded by states, urban bodies and the consortium formed with corporate entities.

The government successfully auctioned 33 coal blocks in FY14 fetching Rs 2 trillion. However it seems determined to carry on the process to reduce the risk of wrong doing in mine allocation. It may be recalled that the Supreme Court had in August 2014 cancelled more than 200 illegal coal block awards made over two decades. Even after the recent round of auctions, as much as 18,000-19,000 MW of coal-based power projects still need coal. Hence the Ministry of Coal will continue to conduct coal block auctions. The move is expected to ease the coal constraint for power sector which has had many projects in the backlog for years for want of coal supplies at reasonable cost.

Movers and shakers during the week
Company22-Apr-1530-Apr-15Change52-wk High/Low
Top gainers during the week (BSE-A Group)
Maruti Suzuki3,4623,7408.0%3,870/1,867
Bharat Forge1,1671,2567.6%1,363/401
Bajaj Finserv1,3321,4226.8%1,575/777
Future Retail1081156.4%152/81
Top losers during the week (BSE-A Group)
Jaiprakash Asso.2421-15.4%90/20
United Breweries1,079930-13.8%1,225/601
Gitanjali Gems4842-11.9%109/39
Indian Bank160142-11.7%224/115
Lanco Infratech65-11.2%15/4
Source: Equitymaster

Now let us move on to some of the key corporate developments of the week gone by.

Auto major Maruti Suzuki is looking to invest as much as Rs 40 bn in FY16 towards new models and marketing expenses. As per the company, this amount would be utilized on enhancing marketing, infrastructure, launching new products as well as on R&D. Some of the major models lined up for launch in the current year include the crossover vehicle SX4 S Cross and premium hatchback code named YRA. The company is also looking to up its efforts to reach the smaller regions in India. Maruti is currently present in 1.25 lakh villages and is looking to expand by 25,000 villages this year. Speaking on his view on the rural demand, Chairman R.C. Bhargava stated that while demand is strong, a lot will depend on the monsoons this year.

Indian Software major Wipro has set its eyes on better margins via automation induced operating efficiency. The company expects its investments in automation, artificial intelligence (AI) and digital technology to improve efficiency. This will enable the company to bring about a reduction of 30% in its headcount in the next three years. Wipro is moving its automation focus from the service desk, to application services, which would lead to a reduction of 30% of its headcount. However, this would not mean more employees will get fired. In fact the attrition would be balanced with redeployment to new, high growth revenue streams.

As per a leading financial daily, NTPC has decided against importing coal for this quarter as supplies from Coal India are adequate to meet its requirements for the period. As per the company, it plans to reduce its imported coal requirements to zero over a five year period. If Coal India is able to meet its requirements, it will look at revising this target. NTPC's coal stock has been boosted to 9 m tonnes as of March 2015, from just 1.6 m tonnes at the end of September last year. This move will help towards reducing the power generation costs and decreasing the tariff rates overall.

Let us take a look at the quarterly results of some of the companies.

India's leading software firm Infosys has announced results for the quarter and year ended March 2015. The Company has reported a 4.7% quarter on quarter (QoQ) fall in the net profit. In rupee terms the consolidated sales decreased by 2.8% QoQ during 4QFY15. In US dollar terms the revenues were down 2.6% QoQ. The appreciation of the US Dollar against major global currencies impacted the topline. Operating profits were down by 6.5% QoQ. Thus, the operating margin which came in at 25.7% this quarter was lower than the same reported in the last quarter of 26.7%. The other income was higher by 4.9% QoQ. Despite the sequential rise in other income, the poor operating performance led to the fall in the profit before tax (PBT) by 4.4% QoQ. The company has announced a bonus issue of 1:1 and a final dividend of Rs 29.5 per share (equivalent to Rs 14.75 post the 1:1 bonus issue). Further, the company has announced two acquisitions: Kallidus Inc. (d.b.a Skava) which specializes in retail mobile commerce for a consideration of US$ 120 m and an early stage minority investment in Airviz for a consideration of US$ 2 m.

India's third largest private sector bank, Axis Bank has announced its financial results for the quarter and year ended 2014-15. During the quarter, the company's total income increased by 21.7% YoY from Rs 1,018 million to Rs 1,238 million. The operating profits witnessed a rise of 23.6%, almost in line with the topline growth. At the bottomline level, net profit increased by 18.4% YoY from Rs 184 million in 4QFY14 to Rs 218 million in 4QFY15.

Ambuja Cements has announced its financial results for the quarter ended March 2015. During the quarter, the company's standalone net sales stood at 24,246 million, down 8.1% on a year-on-year basis. The drop in the topline was driven by a 9% YoY decline in volume sales on account of muted cement demand. While there was an improvement in the net cement realisations, the cost pressures resulted in EBITDA compression of about 240 basis points from 21.8% in 1QCY14 to 19.4% in 1QCY15. At the bottomline level, net profit plunged 38.9% YoY on account of poor operating and non-operating performance.

Going forward, the markets will be driven by the ongoing earnings season as well as geo-political concerns. Also, the ongoing parliament session and reform moves by the government will also be closely tracked. However, investors will be best served if they invest only in fundamentally strong stocks for the long term and ignore short term fluctuations.

Selling pressure persists...

The Indian markets languished in the red throughout the trading session today on the back of persistent selling pressure across index heavyweights. The BSE-Sensex closed lower by about 214 points, while the NSE-Nifty ended lower by about 58 points. Losses were largely seen in metals, FMCG and auto stocks. Both the S&P BSE Midcap index and the S&P BSE Smallcap index closed flat.

Most Asian stocks ended the day in the red, while stocks in Europe were trading mixed. The rupee was trading at Rs 63.55 to the dollar at the time of writing.

Barring Ashok Leyland, most auto stocks closed weak today with the key losers being Tata Motors, Mahindra & Mahindra (M&M) and Hero Motocorp. TVS Motors announced results for the fourth quarter and year ended March 2015. Revenues grew by a decent 14% YoY during the quarter led by the 7% YoY growth in volumes. While volumes of motorcycles were up 12% YoY, growth in scooter volumes was even better at 21% YoY. Two wheeler exports grew by 24% YoY, while three wheeler sales were up 26% YoY. For the quarter, net profits grew by an impressive 74% YoY. For the full year, while total revenues grew by 27% YoY, net profits grew by 33% YoY. The company attributed this healthy performance to a comprehensive product portfolio, good market acceptance of new products and consequent growth in volumes. TVS Motors also closed weak today.

Auto ancillary stocks also closed mixed today. While Bosch Ltd and Bharat Forge found favour, Exide Industries and Amara Raja Batteries closed in the red. Exide Industries also announced results for the fourth quarter and year ended March 2015. Revenues grew by a mere 2% YoY during the quarter as a result of which growth in net profits was also subdued at 4% YoY. For the full year, revenues were up 15% YoY, while profit before tax during the same period grew by 10% YoY. The total dividend for the year stood at Rs 2.2 per share, which translates into a dividend yield of 1.3%.

Markets lose further ground
01:30 pm

After having opened the day on a negative note, Indian stock markets lost further ground and continued to trade in the red in the post-noon trading session. Metal & IT stocks are the biggest losers while consumer durable and oil & gas stocks are trading flat with marginal gains.

BSE Sensex is down 298 points and NSE-Nifty is down by 83 points. On the other hand, BSE Mid Cap is trading down by 0.49% while BSE Small Cap index is trading down by 0.56%. The rupee is trading at 63.59 to the US dollar.

Banking stocks are trading weak today with Indian bank and Bank of Baroda leading the pack of losers. The RBI has levied a penalty of Rs 1.5 crore each on three banks namely Dena Bank, Oriental Bank of Commerce and Bank of Maharashtra for flouting KYC norms. Besides the banking regulator has also reprimanded 8 other banks to put appropriate measures in place in order to ensure strict compliance. While the validity of the transaction conducted by these 3 banks remains unquestioned it is the deficiency in following the compliance rules that has led RBI to levy the fine. We reckon such a step would make banks more serious in adhering to the compliance mechanisms that are already in place.

Healthcare stocks are trading mixed with Ranbaxy and Biocon leading the gains. However, Dr Reddy's and Elder Pharma are trading weak. Biocon announced its 4QFY15 results today. Sales increased by 14.5% YoY to Rs 8.54 bn during the quarter. Net profits stood at Rs 2 bn registering a sharp improvement of 78% YoY aided by exceptional gains of Rs 1 bn arising from sale of shares in Syngene. Operating profits were up 4.7% YoY, however, margins succumbed due to a 93% YoY increase in R&D costs.

Indian stock markets open deep in red
09:30 am

The major Asian stock markets have opened the day on a negative note with stock markets in Japan (down 1.7%) and Hong Kong (down 0.9%) being the major losers. The Indian share markets have opened the day in the red. Majority of the sectoral indices, barring consumer durables and banking, have opened in the negative zone with IT and metal being the biggest losers.

The Sensex today is down by around 216 points (0.8%), while the NSE-Nifty is down by about 64 points (0.8%). The mid cap and small cap stocks have also opened in the red with S&P BSE Midcap index down by 0.5% and S&P BSE Smallcap index down by 0.4%. The rupee is currently trading at Rs 63.64 to the US dollar.

As per a leading financial daily, the Union Cabinet has given a green signal for urban renewal. The clearance has been given to develop 100 smart cities and rejuvenate 500 cities and towns with a population of one lakh and above. Out of the total of Rs 1 trillion allocated for a period of five years, Rs 480 bn are for the 100 smart cities also known as Smart Cities Mission whereas Rs 500 bn have been sanctioned for Atal Mission for Rejuvenation and Urban Transformation (Amrut) for 500 cities. As per the rejuvenation plan, each city would get Rs 1 bn from the Centre for five years while the balance will be funded by states, urban bodies and the consortium formed with corporate entities.

Majority of the energy stocks are trading in the red with Oil India and GAIL being the major losers. As per a leading financial daily, ONGC has recorded a marginal rise in output to 22.26 m tonnes in FY15. The company had posted an output of 22.24 m tonnes in FY14. On a positive note, the continuous decline in the company's output has been arrested in FY15. During the year, the production from the company's Western Offshore fields slowed down, registering a rise of 7.5% to 14.7 m tonnes. ONGC stock is presently trading down by 0.4%.

Optimistic on India's growth but...

Most experts are of the opinion that India's GDP growth for the upcoming year and subsequent years will be better than what it has been in the last couple of fiscals. This view has been further endorsed by none other than the World Bank. As per its latest report, the World Bank projects India's GDP to expand by 7.5% in FY 2016. By FY 2018, the growth is expected to accelerate to 8%. Having said that, this growth is highly conditional on the growth rate in investments in the country too.

The World Bank's projection is lower than the target given in the Union Budget 2015-16 for 8.5% in the current fiscal. But as per the World Bank findings, India's government has undertaken various reforms and has begun its implementation too. As reported in Economic Times, World Bank's country director for India - Onno Ruhl has given positive remarks on the progress made so far.

Mr Ruhl believes the current business environment offers great promise of acceleration in economic growth. However, the current outlook is also dependent on the oil and commodity prices, which have remained low since some time. Hence, it is more important for the government to take advantage of this situation and take steps to boost up the regulations and infrastructure. To do this it needs to unlock investment and push the credit growth. Among the various issues, addressing the problems in the financial sector is quite critical.

It is a truth well acknowledged that an efficient financial sector is crucial for economic development. Since some time, several reports have been sounding the alarm bell for the banking sector. India's present economic woes are marked by a rapidly rising nonperforming assets. Public sector banks, especially, are witnessing a large share of this deterioration in asset quality. Although the government has undertaken some reforms, more needs to be done. Otherwise, it won't take long for global money and investors to lose confidence and interest.